Friday, September 7, 2012

The Latest Attempt to Save the Euro

New York Times
September 6, 2012

It took a while, but on Thursday Mario Draghi, the president of the European Central Bank, explained what he meant last July when he said he would do whatever it takes to save the euro.

Largely as expected, Mr. Draghi said that the E.C.B. plans to buy government bonds issued by troubled euro zone nations, a strategy to hold down borrowing costs in countries like Spain and Italy and, in the process, buy them time to rebuild their recession-racked economies.

What wasn’t fully anticipated was the bleak economic backdrop of the announcement. The E.C.B. revised its projections downward to show a contraction in the euro zone this year of 0.2 percent to 0.6 percent. The Organization for Economic Cooperation and Development also downgraded its assessment, saying that the euro zone recession would worsen in the second half of 2012 while growth in other developed nations, including the United States, would continue to be slow.

Financial markets mostly ignored the pessimistic forecasts, instead rallying on the E.C.B.’s pledge of a new rescue effort. But the broader economic picture underscores the urgency — and limitations — of the latest move.


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